The Economy

William Bain Excerpts

Tuesday 6th December 2011 Commons Chamber

[Gordon Banks (Ochil and South Perthshire) (Lab)]

I draw the House’s attention to my declared interests.

The Government’s economic plan is not working—if it were, we would not have heard much of what we were subject to in last week’s autumn statement. The Chancellor has choked off recovery and in turn raised unemployment. I acknowledge that the eurozone crisis is having an impact on the economy now, but growth in our economy was choked off well over a year ago.

I want to spend a little time looking at economic growth and the role the construction industry can play. Labour has set out measures designed to create jobs and growth, and many of these would help the construction industry: 25,000 affordable homes, 100,000 jobs for young people and cutting VAT to 5% for home improvements. Having started my own business in 1986, I believe that without a vibrant small business sector, economic recovery is impossible, and without a vibrant construction industry, such recovery is equally impossible. The construction industry is of the private sector, but it needs both a vibrant private and public sector to survive. It is also a cash-consuming industry and as such needs the support of the UK finance industry. It is an industry that can create jobs fairly quickly and can train people in skills that will last them a lifetime. However, in recent years more than 300,000 construction sector jobs have been lost, 63,000 of those in the first three months of this year. Private sector job creation is not keeping up with job losses from the public sector. If it were to do that, the Government would need the construction industry to be significantly more active than it is.

The major banks will not lend enough to the industry. They have seen the sector weakened by Government decisions, and by their actions the banks add further to that decline. The benefits of a strong construction industry are, however, great and should mean one thing: more jobs for Britain, and more jobs for Britain means more tax revenue.

An obvious indicator of a country’s economic well-being is its construction industry. Every business needs this sector in order to expand—whether it is through bigger offices, bigger factories, better high-tech communications, or better road and rail infrastructure. However, let me make this point about infrastructure to both Front-Bench teams: major projects are very important, but I would argue for lower-cost, more local investments throughout the country, as well, as they would have an impact throughout the UK in both their development and post-development stages. Only “shovel-ready” proposals will have an immediate impact on our flatlining economy.

[Mr William Bain (Glasgow North East) (Lab)]

My hon. Friend will have noted that in Scotland recently, construction output has fallen by 2.3%. What contribution does he think the cut by John Swinney, the Scottish Government’s Finance Minister—a reduction in capital spending that is two and a half times faster than this Chancellor’s—has made to that slump?

[Gordon Banks]

The Scottish Minister’s decision is responsible for the cuts that could also impact on investment and delivery in the construction industry. The flipside is that if we are prepared to invest in the construction industry, it will deliver; if we cut public spending, it will destroy the industry and with it the economy.

For businesses to grow, they need access to affordable funding. Historically, most small business funding has been generated from our banks, but the Institute for Family Business and the Federation of Small Businesses tell us that, due to the actions of the banks and small businesses’ distrust of them, many such businesses are seeking funding from family members or not seeking it at all. To do the latter damages the business and the economy; to do the former may place limitations on the business, with the same impacts.

However, what is clear is that small and medium-sized enterprises are not at ease with the banking sector. The much-hailed Project Merlin has been a resounding failure. The British Bankers Association has declared that lending targets have been met; however, the FSB and the Federation of Master Builders have other ideas. I have been told of banks meeting their Merlin targets by re-signing existing, unexpired deals. But the truth is, we will never know how much of Merlin is re-signed and regurgitated arrangements. Indeed, this is smoke and mirrors that the Merlin of folklore would be proud of, but I suppose we should not be surprised: the clue is in the name.

I know of financing arrangements that have long been in place being removed with immediate effect, leaving a business in turmoil. Then, the bank returns to the business a few days later with the offer of a term loan that is new business for the bank to write—no doubt adding to the Merlin figures—at increased rates and with arrangement fees, all paid for by the business and with less capital provision for the lender, but leaving the business without any long-term funding in place.

Small businesses in the construction sector have been victimised on two fronts: for being small, and for being in the construction sector, which is deemed toxic by many lenders.

When considering finance, however, we should not forget first-time buyers and the crisis in mortgage lending. In 2007, there were 357,000 first-time buyers in the UK, and as a result the British high street was boosted by some £2.1 billion when these people kitted out their homes. However, today, young people, who are the majority of would-be first-time buyers, are unable to purchase their own home. Now, the average age of a first-time buyer without parental support is 38. With 25 or 30-year mortgages, these first-time buyers could still be paying off their mortgages as they approach their 70s. Surely, pensioners paying mortgages is not something we want to see in Britain in years to come.

In my business, where investment in vehicles can cost up to £130,000 each, and where forklifts and loading shovels cost tens of thousands of pounds, the real driver for investment is the footfall of customers and the profit margin. Both have taken a tumble in recent years, and nothing that I have seen this Government do or promise to do will result in more customers or a rise in profit margins.

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[Mr David Anderson (Blaydon) (Lab)]

Last week was the week when the bubble burst and the Conservatives had to accept what everybody else knew: that the Chancellor had got it wrong on growth, this year and next; on unemployment, up by half a million next year; on borrowing, going up to £158 billion; on children in poverty, again set to rise; and on hitting women the hardest. The House of Commons Library says that the effect of cuts to tax credits and attacking public sector pay will impact on 73% of the women involved. There is complete humiliation for the Chancellor and even more damage to our economy, but who carries the can for the failure of the system? The old, the young, the jobless, the disabled and the women of this country.

As always, when capitalism fails, it is the most vulnerable who suffer. We should look back to the 1930s. Only a few weeks ago, young people marched to London in a sad echo of the crusades of those who left Jarrow 75 years ago. Those brave souls in 1936 did not march to London for the exercise—they did it because they were starving, jobless, and desperate. Just like today, they were turned away empty-handed and made to carry the can for a mess they did not create.

We all know that history repeated itself in the 1980s, when the country was led in a series of recessions by a neo-liberal Government who saw the deindustrialisation of this nation as a price worth paying. They destroyed not only the coal mining and shipbuilding industries of this country but the manufacturing industry that those industries helped to create and that was making leading, cutting-edge technology for the coal-mining industry. Why did we do that? Because the market demanded that we did it. It said that British coal was too expensive and that we needed cheaper coal to deliver cheap power. The Government’s response was, “That’s okay. It’s a price worth paying.” They were not paying it and their constituents were not paying it; the people in my part of the world were paying it. The outcome was that hundreds and thousands of lives were decimated, local communities withered and died, and support industries died off.

The truth remains that it is the less well-off, the poor, the frail, the poorly educated who lose the most, while those in charge—the ones to blame—get off scot-free. What else can we say when we face a situation where a quarter of our children will be living in poverty, record numbers of people are out of work, and those lucky enough to retain a job face pay freezes, an unprecedented drop in living standards, and a real lack of security, while at the same time Barclays makes a £11.6 billion profit and pays only £113 million in corporation tax, and its poor chief executive is paid only a measly quarter of a million pound salary but, luckily for him, it is topped up with a bonus of £6.5 million?

[Mr Bain]

My hon. Friend is making a passionate argument, as ever. The Chancellor said earlier that the only people who were calling for an alternative were, in effect, communists. Does my hon. Friend share my sense of disgust at the Chancellor’s slurring the democratically elected Government of Denmark, who are engaged in a stimulus programme and have seen their bond yields fall?

[Mr Anderson]

I am very clear that the Chancellor is trying to pretend that nobody else in the world wants what we want. The whole world is crying out for a change to a system that has let it down.

The people of this country—the nurses, the doctors, the care workers—are carrying the can for the failure of global capitalism. We now know that 98 of the top 100 FTSE-listed companies are avoiding £20 billion-plus of tax by putting their money into offshore tax havens.

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[Mr Clarke]

The Chancellor likes to hear himself, but I do not see him often when others are speaking.

We are entitled to be extremely worried given that over the past three months unemployment has reached its highest level in 17 years. There are now more women unemployed than at any time since 1988. All of this is a consequence of this Government’s austerity measures—and what improvement has there been as a result of the hardship?

[Mr Bain]

My right hon. Friend has been a champion of equality since being elected to this House in 1982. I wonder whether he has had an opportunity to consider the report issued by the Institute for Fiscal Studies this morning, which says that one of the biggest drivers of the lift in household incomes has been female employment. How does he believe the cuts announced by the Chancellor in the Budget and the autumn statement will contribute to living standards?

[Mr Clarke]

My hon. Friend, as usual, makes an interesting and relevant point. I hope to return to it later if time allows.

The Office for Budget Responsibility has forecast that growth will now be lower this year, and for every year until 2014. Unemployment will rise next year and be higher than previously forecast in every year until 2015. Consequently, Government borrowing, which we have heard so much about, is set to be £158 billion higher than was planned a year ago.

The coalition Government’s economic policy is simply not working. When Labour left office, the economy was growing. In the past 12 months, only Greece, Portugal and Cyprus have grown more slowly than Britain. That is not just because of the eurozone crisis. The British recovery was choked off more than a year ago. In the 12 months since the Government’s spending review the UK economy has grown, but by a mere 0.5%, while the EU has grown by an average of 1.4%. Their policy has starved us of growth.

Britain needs sensible public sector projects that will stimulate our economy, so that it is less dependent on a downward spiral of destructive cuts. Instead, the OBR forecasts more than 700,000 public sector job losses as a result of Government measures, and for anyone who remains, a ceiling of 1% is being put on pay rises for the two years following the spending review period.

Youth unemployment has exceeded the 1 million mark, and long-term unemployment among 18 to 24-year-olds is up by a shocking 83% since the start of 2011. What do the Government do in the face of that crisis? They scrap the future jobs fund and introduce three-year work placement subsidies, which will mean just over 53,000 funded jobs—a far smaller number than the 105,000 starts provided by the future jobs fund between October 2009 and March 2011. Those new placements are not even guaranteed. No wonder our young people feel cheated by society. That message certainly comes over to me in my constituency.

If we are not careful there will again be a lost generation of young people—just as there was in the ’80s, Mrs Thatcher’s time—which will lead to broken homes, broken relationships, dashed hopes and broken dreams. I would not for one second condone the riots that took place in England earlier this year, particularly as I am asking the House to reflect on what youth unemployment actually means. Indeed, I am pleased that they did not extend to Scotland. However, it would be naive in the extreme to think that we can continue with the figures and statistics that are a reality in Scotland and not expect young people to articulate their views.

We were first warned about these matters as long ago as during the war, when Sir William Beveridge wrote:

“If full employment is not won and kept, no liberties are secure, for to many they will not seem worth while.”

So what about the poor and people with disabilities? Since 2010 jobseeker’s allowance claimants have risen in the most deprived areas of my constituency—I underline the word “deprived”—from 26.3% to 28.1%, against a UK average of 3.9%. We are asking what the Government’s response will be, because that is a real problem. Additionally, Mencap has found that one in two families with a disabled child live in poverty. The Chancellor is playing with the lives of those people. As they teeter on the breadline, tax credits are being cut, Sure Start centres are closing at an alarming rate and the number of people able to claim disability benefit is being cut.

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[Angela Smith (Penistone and Stocksbridge) (Lab)]

Follow that, as they say.

There is no doubt that the economic news of the past few weeks has been appalling. In last Tuesday’s autumn statement, the Chancellor finally admitted what the shadow Chancellor and many economists had been telling him for months—that the massive gamble that he took in June 2010 has failed.

Last week, the Chancellor announced not plan B but plan A-plus. Over this Parliament, the Government will now have to borrow £158 billion more than they said just 18 months ago. That is despite the pain of cuts worth £40 billion imposed on the economy and tax rises imposed on ordinary families up and down the country.

[Mr Bain]

Is my hon. Friend aware of the figures from the OBR which indicate the scale of the Chancellor’s disaster? There has been £15 billion less in tax revenues coming into the Treasury. Does that not explain the scale of his under-achievement on growth?

[Angela Smith]

It absolutely does explain the scale of it. Let us make real-life sense out of some of these figures. They mean that 700,000 public servants had to be cast aside, 300,000 more than the Chancellor said would lose their jobs just a few months ago. Some £1.2 billion has been taken off tax credits while bankers suffer a mere £300 million increase in the take from their pay packets by the Treasury.

Any pretence of fairness and of our all being in this together went out the window last Tuesday. Ordinary families are taking a massive hit: already more people are unemployed than at any time since 1994—the current figure is 2.6 million—and to make matters worse the number of people out of work for more than a year is 868,000, with the long-term rate for 16 to 24-year-olds standing at a staggering 30%.

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[Mr William Bain (Glasgow North East) (Lab)]

Thank you, Madam Deputy Speaker, for calling me to speak in this extremely important debate.

The huge error made by the Chancellor on assuming office last year was to mistake a global crisis of demand, growth and jobs for one purely of debt and deficit. He launched a grand experiment of so-called expansionary fiscal contraction, which he must now admit has been the most disastrous episode in British fiscal policy since the 1930s.

The Chancellor took an economy recovering at an annualised rate of 2.1% at the end of the previous Government’s period in office and turned it into an economy with flatlining growth. This autumn, our rate of growth stands as the fifth lowest in the EU according to the European Commission and is lower than the eurozone average. The National Institute of Economic and Social Research has said that this is the slowest recovery from recession in Britain in a century. In the great recession of the 1930s, it took just 48 months to rebuild the lost output in the economy. Under this Chancellor, it will be 69 months and counting. Even taking into account the measures announced by the Government last week, the OBR has downgraded growth for the fourth time since its initial forecasts last June. Growth is now 0.8% lower this year and a whopping 1.8% lower next year than in the previous March forecasts.

The burden is not being shouldered by the Chancellor, nor by the rich and powerful in society. It is being paid by women working part time to help support their families. It is being paid by children facing lower living standards than the generation before them. Above all, it is being paid by the poor, with the number of people in food poverty in this country approaching 4 million, and by the unemployed, with the number of young jobless now more than a million.

The respected Fraser of Allander Institute has said in its latest commentary that there is still some scope for fiscal easing without damaging our fiscal credibility in the long term. As Tony Dolphin of the Institute for Public Policy Research wrote last week in relation to the Government’s fiscal consolidation plan and its impact on bond yields:

“If it had started with a plan that reduced the deficit more slowly—say over six years rather than four—yields would probably be little different from current levels now.”

What is particularly worrying is that the same austerity medicine is being applied in many other EU countries with similar results.

The Chancellor’s growth strategy is now predicated on maintaining loose monetary policy indefinitely, with ever higher levels of quantitative easing, a policy he once derided as

“the last resort of desperate governments”

whose other economic policies had failed. As the experience in the 1990s shows, low interest rates in themselves are insufficient to generate new demand. Japan has net debt of more than 200% of GDP, but even lower bond yields than the UK. As the Japanese economist Richard Koo recently said of austerity economics in an interview with Money magazine in the United States:

“The Japanese made a horrendous mistake in 1997.”

He explained that

“The cutback caused a second recession… The Japanese Government didn’t do enough spending in the early 1990s and added another 10 years to the problem.”

It is precisely that thinking that underpins what the Chancellor is doing today.

The Government are ignoring four basic realities about our economy. The first is that living standards for families with working-age parents are being squeezed to levels last seen in the 1920s, amid slumping consumer confidence, slumping demand and weak retail sales. The second is that supply-side reforms are needed to stimulate growth in manufacturing and construction. In particular, a national investment bank could produce the borrowing capital needed to kick-start new investment in the green economy. The third is that mass unemployment creates massive social costs and unrest, and devastates lives, which ends up placing a higher burden on future taxpayers. That is the price of economic failure. Finally, we need to build an economy in which those on low and middle incomes share more of the proceeds of growth than they have over the past three decades.

The country is crying out for a fair alternative to this failed Tory plan that is sucking demand from our economy, and hope and life from our communities. Our country deserves better leadership and a more optimistic vision of the future than that which has been offered by the downgraded Chancellor of this deflationary Government.